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MBAX9122 - Economics in Management Practice | Report

   

Added on  2020-03-01

20 Pages4236 Words78 Views
Running head: MACROECONOMICSMACROECONOMICSName of the studentName of the UniversityAuthor’s Note

1MACROECONOMICSTable of ContentsIntroduction......................................................................................................................................3Question 1........................................................................................................................................3Loanable funds model..................................................................................................................3Loanable funds demand...............................................................................................................4Loanable funds supply.................................................................................................................4Factors that influence both demand and supply of loanable funds..............................................5Movements in the variable interest rates on small business loans...............................................6Question 2........................................................................................................................................8Macroeconomic situation for both the Australian and World economies over the next 5 years.8Forecasting variable interest rate on small business loans over the next 5 years......................15Conclusion.....................................................................................................................................17References......................................................................................................................................18

2MACROECONOMICSIntroduction The report discusses about the structure of loanable funds model and demand and supply ofloanable funds model. Loanable funds model is a framework that is used to determine the causesof increase or decrease in interest rates and assess measurement of policy wisdom planned forinfluencing interest rates and growth rates. In addition, this framework determines the interestrate by supply and demand for loanable funds (Yunus, 2012). It is also used to explore theinfluence of variation in macroeconomic factors on the real rate of interest rate. This study alsohighlights on the variables that impact on the supply and demand for loanable funds. Thevariable interest rate and its significance in the business decision making is also explained in thisstudy. The paper also reflects on the movements of demand and supply in variable interest rateon small business loans. The economic outlook of Australia and world economies for the nextfive years using macroeconomic indicators is also illustrated in this report. The prediction onvariable interest rate on small business loans over the 5 years is also shown in this study.Question 1Loanable funds modelThe formation of loanable funds model refers to the comparative equilibrium framework thatutilizes both the demand curve as well as the supply curve for tracing equilibrium price of marketclearance. This price is basically the interest rate in this model and is represented by r (Wu andXia 2016). The complexity of interest rate is also simplified by using this model. Theequilibrium interest rate is attained by the intersection between the demand and supply curve.The demand curve in loanable model signifies the credit demand by borrowers whereas the

3MACROECONOMICSsupply curve implies credit supply by lenders. The borrowers involve consumer borrowers andcorporate borrowing while the lenders includes mortgage, credit card and instrument leasingcompanies. For example, in U.S the occurrence of borrowing is funded through interest saleholding financial assets. On the contrary, the US government sells treasury bonds for running itsbudget deficit (Petersen and Rajan 2012). However, The Federal Reserve implies the openmarket operation policies in order to regulate supply credit system. Figure 1: Loanable funds frameworkSource: (Author’s creation)Loanable funds demandLoanable funds demand signifies borrowers desire to borrow and is negatively sloped in respectof the interest rates. The negatively sloped demand curve occurs due to low interest rates and thisfacilitates the consumers to borrow money at much cheaper rate. Therefore, lower loan cost

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